If you want to get exposure to the Macau sector you cannot miss this name: Emperor Entertainment.

Emperor Entertainment is a company listed in HK (296 HK). It owns 60% of one of the so called "satellite properties" in Macau. They have a sub license contract from SJM (880 HK) which means they can legally operate gambling tables in the property. The other 40% of the property is owned partially by SJM, an HK Tycoon and the famous actor Jackie Chan.

They only operate Mass Market table, the one reserved to wealthy Chinese which are not brought in by junkets. This is the most profitable segment of the market.

Valuation

This is the best part of the story. The company is a small cap with only 2.1bn HKD mkt cap and little to no coverage by the mainstream and the sell side. This is somewhat inconvenient, and if you have any issue with Chinese small cap then don't even go on reading. But if you are willing to bet on HK corporate governance and if you want to trust the number posted with the HK markets authority then you cannot miss this.

The Company in fact is sitting on a relatively huge pile of cash. At the end of march 12 (they only report halves in march and September) it was 1.17 BN HKD.

The NI for the year ending in march 12 was 467 mn HKD.

This means the company is trading at a 4.4xPE, actually at a 2xPE if you adjust for cash!!!

This is clearly very cheap and even more if you compare it to the comparables:

SJM (880 HK) @ 15.32 x PE

WYNN Macau ( 1128 HK) @ 16.56 PE

Galaxy (27 HK) @ 15.64 x PE

Our conclusion is that: if you think that China will not disappear, that Chinese people will not stop to gamble and if you are fine with holding a Chinese small cap then you cannot miss this one

Catalyst

Yesterday SJM (880HK) reported good numbers (NI up 44% q/q) and next week Emperor will. We expect the stock to start re-rating. And once the move will be started it will get attention from the investor community and the sell-side thus initiating a snowball effect. It will take time but the opportunity is huge. (PE expansion from 2x to 16x calls for an eight-bagger)

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